The President will use a meeting with Mr Netanyahu in Washington on Monday to tell him that from now on Israel must earn its privileged relationship with America.
Mr Obama will make clear that he will not allow his foreign policy objectives to be dictated by the Jewish state's interests, and that its leaders must resume working for peace with the Palestinians.
The President has already fired warning shots across the bows of the Israeli government to signal that he will not be pushed around by Mr Netanyahu's newly elected right-wing coalition. Many within Israel's government are openly hostile to two key aspects of American policy on the Middle East: statehood for the Palestinians and engagement with Iran.
Martin Indyk, a former US ambassador to Israel, said: "Netanyahu is caught between a rock and a hard place, the rock being the president's determination to achieve a two-state solution and the hard place being his political base which opposes it. He's inching toward the Obama position but trying to avoid saying the words, 'two-state solution.'"
Mr Netanyahu's political survival may depend on him sticking to his position. Avigdor Lieberman, the Israeli foreign minister whose right-wing party is essential to the survival of the Likud-led coalition, is forthrightly opposed to the creation of a Palestinian state.